Personalized Medicine and Pay for Performance: Should Pharmaceutical Firms be Fully Penalized when Treatment Fails?
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In this article, we model the behavior of a pharmaceutical firm that has marketing authorization for a new therapy believed to be a candidate for personalized use in a subset of patients, but that lacks information as to why a response is seen only in some patients. We characterize the optimal outcome-based reimbursement policy a health authority should follow to encourage the pharmaceutical firm to undertake research and development activities to generate the information needed to effectively stratify patients. Consistent with the literature, we find that for a pharmaceutical firm that does not undertake research and development activities, when the treatment fails, the total price of the drug must be returned to the healthcare system (full penalization). By contrast, if the firm undertakes research and development activities that make the implementation of personalized medicine possible, treatment failure should not be fully penalized. Surprisingly, in some cases, particularly for high-efficacy drugs and small target populations, the optimal policy may not require any penalty for treatment failure. To illustrate the main results of the analysis, we provide a numerical simulation and a graphical analysis.
JEL ClassificationI11 I18
Financial support from MINECO (Project ECO2016-78685-R) is gratefully acknowledged. We thank Paul Overton from Beacon Medical Communications (UK) for the English editing of this manuscript. We thank the editor and two anonymous referees for their comments and suggestions.
RR-I acted as a health economist on this article, developed the model analytical results, and contributed to the writing of the text. CAJ-C acted as a health economist on this article, programmed and ran the numerical simulations, and designed the figures. FA acted as a health economist on this article, conceptualized the research problem, contributed to the writing of the test, and acted as the overall guarantor for the overall content of this article. All authors contributed to the conception and planning of the work, and critically revised and approved the final submitted version of the manuscript.
Compliance with Ethical Standards
This study was funded by the Spanish Ministry of Economics, MINECO (Project ECO2016-78685-R).
Conflict of interest
Fernando Antoñanzas, Carmelo A. Juárez-Castelló, and Roberto Rodríguez-Ibeas have no conflicts of interest directly relevant to the content of this article.
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